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Economic Price Adjustment Update

Economic Price Adjustment Update. Chris Grassano Project Manager 3 February 2009. Status. EPA Cost and Index methodologies have been refined. Working on methodology/guidelines for determining when EPA is appropriate New Modified Survey sent out to Ammo Sub Group on 21 Jan 2009. Includes

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Economic Price Adjustment Update

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  1. Economic Price AdjustmentUpdate Chris Grassano Project Manager 3 February 2009

  2. Status • EPA Cost and Index methodologies have been refined. • Working on methodology/guidelines for determining when EPA is appropriate • New Modified Survey sent out to Ammo Sub Group on 21 Jan 2009. Includes • Previous survey on Actual and Index Methodologies • Modified survey seeking thoughts on when to include EPA • Looking for completed surveys by mid Feb

  3. Guidelines for Incorporating an EPA into a Contract • Historical volatility • Review index - If index is not available, contractor to submit information to substantiate volatility during market survey and draft RFP process • Anticipated volatility • Comparison of current price vs. futures price if available • What level of volatility is a threshold? • Impact of the material to the procurement • Material content in the overall unit price • Quantity of units in the procurement • What level of material is a threshold? • Contract length • How long should the contract be to warrant an EPA? What Else?

  4. EPA Guidelines • Should an EPA be used? Consider Input from Market Survey Has commodity experienced historical volatility Yes Does contract length warrant EPA? Does commodity have significant impact to the procurement? Yes Yes Incorporate an EPA No Is commodity anticipated to have volatility? No No Yes No Do Not Incorporate an EPA Thoughts?

  5. Selecting EPA Method 2) Selecting EPA Method Do indices exist for raw material? Is index method preferable for this procurement? (PCO decision) Does procurement represent single or multiple purchases of raw material over a period of time? Multiple Yes Yes Index Method B (avg. Index value) ICAP Members generally opposed to index averages, especially annual averages Single Actual Cost Method No No Index Method A (discrete index value) 3) Tailoring Clause Terms & Conditions Select Specific Index Issue DRAFT RFP Select Cap Select Threshold Bureau of Labor Statistics, London Metals Exchange? +/- 3% ? Max 50% annual upward adjustment? Any Additional Thoughts?

  6. EPA Timelines Execution Index Method Timeline 45 Days in Advance Contemplation Letter 25 Days in Advance Contractor Response Award 45 Days in Advance Contemplation Letter 25 Days in Advance Contractor Response Award PCO Issues Request for Actual Data Contractor Response PCO Mods Contract After Award Method Prior to Award Method Actual Cost Method Timelines Thoughts?

  7. Best Method Varies by Situation • Certain raw material costs known to be volatile, addressing them during draft RFP process • Offeror should suggest raw materials for inclusion in EPA clause • If raw material can be tracked with an index, offeror can suggest an appropriate index • If raw material hard to track with an index, two ways to handle: • Actual cost method • If sole source, negotiate higher profit for higher risk Three Survey Responses to Date Need Your Input to Achieve an Optimal Solution

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